It's not just Deutsche Bank: these banks urgently need to cut heads as well

By the end of this month, Deutsche Bank will have finished laying people off at investment bank. So says CFO James Moltke. Any surviving DB staff should be safe; they may even get a retention bonus to help cheer them up. Unfortunately, as things start looking-up at Deutsche Bank, other banks may need to start looking down at their own bottom lines.

Banking research company Tricumen suggests there may be several banks with issues. Deutsche Bank is one of them, but it is not alone.

The big French banks have big cost issues too

The chart below from Tricumen shows how banks' operating cost/income ratios (in US$ terms) compared globally for all their capital markets (investment banking and sales and trading) activities in the first quarter of 2018 .

It suggests that J.P. Morgan and Citi are the safest investment banks to work for right now: the two big banks are far out-performing the rest in efficiency terms. By comparison, Deutsche Bank, SocGen and BNP are the most vulnerable: they are each far less efficient than the rest.

The chart below suggests both French banks may want to focus less on growth and more on cuts.

This doesn't mean jobs at the biggest banks are categorically safe. Both Daniel Pinto (head of J.P. Morgan's corporate and investment bank) and Michael Corbat, Citi CEO, remain highly focused on efficiency. Corbat said last month that Citi's focus is on using technology to, "hold costs". Pinto said J.P. Morgan also wants to use technology to cut costs and lower expenses, but that the "low hanging fruit" has already been taken out and things will get harder from here on in.

Operating cost/income, Q118 (US$, all capital markets)

Barclays, UBS and Credit Suisse need to cut some investment bankers (as do BNP and SocGen)

If Tricumen's chart for overall costs across trading and investment banking divisions suggests French banks most need to cut heads, its chart for "banking" (defined as debt capital markets bonds and loans, securitisation, equity capital markets,andM&A (ie. the traditional investment banking division or IBD), suggests that Barclays, UBS and Credit Suisse were also in trouble in the first quarter. All had elevated costs compared to revenues.

Tricumen suggests all three have further to go. Meanwhile, bankers at J.P. Morgan and Morgan Stanley look pretty safe by comparison.

Operating cost/income, Q1 2018, (US$, investment banking division)

SocGen's fixed income traders need to be super-afraid

If everyone at SocGen needs to be wary of the comparatively high cost ratio in the CIB (admittedly when stated in US$), the French bank's fixed income traders need to be especially wary. As the chart below shows, SocGen's fixed income business is crazily inefficient. Curiously, this is also the business SocGen most wants to grow. In the event that the bank does actually merge with Unicredit, fixed income could be where the cuts happen: Unicredit has a big fixed income derivatives business in Germany under HypoVereinsbank.

The last chart from Tricumen helps explain why it is that Deutsche Bank is cutting 25% of staff from its equities trading business. Worryingly, it suggests Wells Fargo might want to do the same. There's little sign of this happening, although Wells Fargo did reportedly cut 10 (or so) U.S. equities professionals in April.

As ever, JPM and Citi staff are sitting comparatively pretty - in equities as elsewhere. Did someone say safe harbour?

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